Not content merely to call for a tax hike on Scotland’s and Northern Ireland’s note-issuing banks, the UK Treasury report previously mentioned here adds insult to injury. The Herald (UK) reports that the Treasury also wants to quash the banks’ tradition of issuing commemorative notes, like last month’s Jack Nicklaus note (mentioned here):

The Treasury is arguing that, by having a variety of different designs in circulation for notes of the same value, it is easier to pass off counterfeit currency. Discussions are now under way to find ways of improving protection against fake banknotes.

One of the proposals is to limit the number of designs available to the three banks that print their own notes north of the border.

In a departure from the tradition of commemorative notes, the banks would be limited to issuing just one standard design for each denomination.

Question: is there any evidence that counterfeiting of private banknotes has actually been a problem? Is there any reason to think that the costs of counterfeiting don’t fall on the banks themselves, giving them plenty enough incentive to combat it?

The one time in my career I’ve been invited to give Congressional testimony was during hearings over the redesign of Federal Reserve notes with anti-counterfeiting devices. I was invited because a staffer working for Congressman Ron Paul noticed a couple of paragraphs on counterfeiting in my book Free Banking in Britain. Counterfeiting wasn’t a problem for 19th century Scottish banks, I noted, because notes didn’t stay in circulation long. When they were deposited in the issuing bank (or other banks, and returned through the clearinghouse), they came under the gaze of bank tellers who had an incentive to spot fakes. (Federal Reserve notes, by contrast, are simply re-issued by US commercial banks, who have no incentive to spot fakes.) Banks’ policy was typically to accept fakes from innocent depositors, provided they fingered the source. The bank could track down the counterfeiter while the trail was warm. I’m not sure the three Congressmen in the room when I testified were bowled over by the idea, but my message was that privatizing note issue is a way to mobilize private incentives against counterfeiting.

I don’t know why we should expect that counterfeiting of Scottish or Northern Irish bank notes is any more of a problem today.